Covered foreign currency loan

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Covered foreign currency loan

A loan denominated in a currency other than that of the borrower's home country, for which repayment terms are prearranged through the use of a forward currency contract.

Covered Foreign Currency Loan

A loan made in a currency other than the one in which the borrower usually operates. For example, a borrower in the U.S. may take out a loan in pounds sterling to finance new operations in the U.K. The loan is "covered" because the parties use a foreign currency forward contract, an agreement in which the parties agree to trade certain currencies in the future at a given exchange rate to hedge against foreign exchange risk.